Negative Equity Refinance

Our house is currently valued at 365,000 and the purchase price was 514,000. Is it impossible to refinance this with the loss???

1 Answer

Normally, your LTV (loan to value or collateral), credit score and income will determine what your options are.  In short the remaining balance owed divided by the appraised value ($365,000) will determine the LTV (loan to value). However, most lenders in the current market will not lend with a LTV over 95%. 

However, if the LTV is higher than 95% you will probably not be able to obtain mortgage insurance to carry that high of a LTV or get subordinate financing (most banks only offer 90%ltv) or less.  This is due largely due to Fannie Mae and Freddie Mac, guideline changes and mortgage insurance companies not allowing for  LTV's over 95%. Unfortunately, subordinate financing has dried up and will most likely CAP the cltv (combined loan to value) at 90-95%. 

Another factor is your home is in a declining market and the LTV will be further reduced depending on the loan product an additional 5%-15%.  Secondly, I think in a declining market (area where home values are declining), the appraisal will be scrutinized. So even if the other factors are met the comps on the appraisal will have to be pretty solid and would most likely require a review.

So unless you put down $167,250 you will more or less be in a negative equity situation.  It sounds like you will most likely be in a negative equity situation and unable to refinance.